The CARES Act and Early Retirement Withdrawals

The Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (CARES Act), provides relief to eligible individuals taking withdrawals or loans from qualified employer retirement plans and Individual Retirement Arrangements (IRAs).

Coronavirus-related withdrawals and loans

Individuals may be eligible for coronavirus-related relief on withdrawals from qualified employer retirement plans or IRAs and on loans from qualified employer retirement plans. The relief only applies to certain withdrawals and loans made to the following individuals:

• The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
• The individual’s spouse or dependent is diagnosed with such virus or disease by such a test;
• The individual experiences adverse financial consequences as a result of:
  • being quarantined, being furloughed or laid off, or having work hours reduced due to such virus or disease;
  • being unable to work due to lack of childcare due to such virus or disease; or
  • closing or reducing hours of a business owned or operated by the individual due to such virus or disease;
• Other categories of individuals that that IRS may provide in future guidance.

Withdrawals: For withdrawals made in 2020 before December 31, 2020, eligible individuals may be able to request coronavirus-related withdrawals of up to an aggregate limit of $100,000 from their qualified employer retirement plans and IRAs. These coronavirus-related withdrawals:

• Are not subject to the 10-percent additional tax on early distributions that would otherwise apply to most withdrawals before reaching age 59½.
• May be repaid to a qualified employer plan or IRA within three years.
• The tax due on withdrawals can be paid over three years.

Loans: Eligible individuals may also, until September 22, 2020, be able to request a plan loan in an increased amount from their qualified employer retirement plan account, if their plan allows. In general, the CARES Act increased the Internal Revenue Code limit on plan loans to eligible individuals from the lesser of $50,000 or 50 percent of the vested account balance to the lesser of $100,000 or 100% of the vested account balance. Loans are not available from an IRA.

For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due from March 27, 2020 to December 31, 2020. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.

Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

Seniors, retirees not required to take distributions from retirement accounts this year 

The CARES Act, waives required minimum distributions (RMDs) during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. Roth IRAs do not require withdrawals until after the death of the owner.

If an individual has already taken an RMD in 2020, the individual will have the option of returning the distribution to their account or other qualified plan. RMDs taken in 2020 are considered eligible for rollover and can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan.

An IRA owner or beneficiary who has already received an RMD in 2020 can also repay the distribution to the distributing IRA no later than Aug. 31, 2020, to avoid paying taxes on that distribution.

IRS Notice 2020-51 (PDF) also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs do not apply to this repayment.

The CARES Act provisions apply to most retirement plans, profit sharing plans and other defined contribution plans. The RMD suspension does not apply to qualified defined benefit plans.

For more information visit:

• Coronavirus Tax Relief for Health Plans and Retirement Plans,
• New law provides relief for eligible taxpayers who need funds from IRAs and other retirement plans
• Seniors, retirees not required to take distributions from retirement accounts this year under new law, and
• Coronavirus-related relief for retirement plans and IRAs questions and answers.

See also the Individual Retirement Accounts (IRAs) and workplace-based retirement plans section of the Filing and Payment Deadlines Questions and Answers, or Coronavirus Tax Relief and Economic Impact Payments.